Tesla fans keep buying, unbowed by the $720 billion wipeout

Even the worst year ever for Tesla Inc. shares hasn’t shaken individual investors’ faith in the electric-vehicle maker and its billionaire chief executive officer, Elon Musk.

Such retail traders have continued piling into the shares, data from Vanda Research show. In fact, they’ve been strong buyers every day this month, driving their net purchases to record highs in both December and the fourth quarter.

On Wednesday, they appeared poised to get a small reward for their loyalty: Tesla jumped as much as 6.6% soon after the market’s open. But the shares gave back almost all those gains by late morning, threatening to extend a seven-day losing streak that has driven them down 70% this year and erased almost $720 billion from the company’s stock-market capitalization.

The drubbing has been fueled by rising interest rates that battered growth stocks, worries that demand will erode if there’s a recession, and concerns that Musk’s acquisition of Twitter will divert his attention and increase his sales of Tesla stock to keep the social-media company afloat. The drop had made it the third-worst performer in the S&P 500 Index this year.

Yet for Tesla’s diehard fans among retail investors, the risks to electric-vehicle demand or Musk’s preoccupation with Twitter haven’t been enough to sour them on a stock that became one of Wall Street’s highest fliers during the pandemic.

“Retail investors have bought more Tesla stock over the last 6 months than they have done overall in the 60 months prior to this,” Vanda’s senior strategist Viraj Patel said. “For institutional investors, it’s a seller’s paradise when you have a buyer that is clearly not reading the fundamental signals.”

On Tuesday, Tesla was hit by an 11% slump on fresh concerns about a production halt at its Shanghai plant and last week’s report that Tesla is offering US consumers a hefty $7,500 discount to take delivery of its cars before year-end.

That fueled concerns about eroding demand ahead of fourth-quarter delivery numbers expected in early January. Estimates have been coming down in recent weeks, and on Wednesday Baird analyst Ben Kallo was the latest to lower his, citing the “potential for weakening of demand.”

Growth stocks overall have been hammered this year, with the Nasdaq 100 slumping 33% as the Federal Reserve hiked interest rates aggressively to tame inflation. Tesla was the second-biggest drag on the index after Amazon. com Inc., with this year’s plunge marking a stark turnaround from the company’s 1,163% rally over the prior two years. Musk’s sales of Tesla stock and the distraction caused by his Twitter takeover also haven’t helped.

“It feels like confidence is gone, and Tesla’s fairy tale suddenly ended,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Investors are more eager to see how the looming recession will hit Tesla demand, how competition from other electric-vehicle makers will impact Tesla’s market share, and when Elon Musk will stop messing elsewhere while Tesla is shaking badly.”